Nickels

If you want to get a whiff of the seamier edge of corporate philanthropy, check out the new charitable marketing scheme by 5-Hour Energy®. The company has undertaken an advertising blitz to explain that when people buy special red, white, and blue bottles of their new cherry-flavored energy drink, a portion of the sales will go to a nonprofit called the Special Operations Warrior Foundation.

I confess that I’m not a big fan of 5-Hour Energy. Like me, you’ve probably seen the product near the cash registers at gas stations: little not-quite-two-ounce bottles of foul-tasting caffeinated syrup that, for $2.99 apiece, give you the oomph you need to get through an afternoon at the office or a long nighttime drive to Altoona. I’m not a caffeine guy, but when I partake, I go for coffee. It tastes better than 5-hour Energy, contains vastly fewer chemicals, and doesn’t come in plastic bottles that end up on the side of the road.

But I digress.

What 5-Hour Energy is doing is a classic example of the trend that Mara Einstein describes in her book, Compassion, Inc.: Cause-related marketing. You see, in the old days corporations would rely on philanthropy committees or departments to evaluate charitable opportunities, and they would then cut outright checks to nonprofits. Some corporations still do that, of course, but more and more the charitable decisions are overseen by corporate marketing departments, and increasingly that giving is tied directly to the sale of a product.

The most well-known example of charitable marketing tie-ins is the breast cancer pink ribbon trademarked by Susan G. Komen For the Cure. There are fully 20 pages of Komen-related items on Amazon, from pink Swiss Army knives to be-ribboned New Balance running shoes. As Einstein explains, this form of marketing works: customers prefer buying the item with a charitable tie-in, rather than the competitor’s brand without the pink ribbon or other cause-related branding. Buying detergent or lipstick or socks somehow becomes a charitable act, for the consumer and the manufacturer, both.

But here’s the core question: How much money from these purchases actually goes to charity? Usually, corporations don’t specify the amount or the percentage. I have to give 5-Hour Energy credit, because they come right out and say how much they’re donating to the Special Operations Warrior Foundation from each sale of their new cherry-flavored bottles: a nickel.

If you’re doing the math, those five cents amount to 1.6% of the retail price.

That’s hardly a gusher of charitable largesse for a company that Forbes Magazine estimates as having $1 billion in annual sales, and which is owned by a man who ranks 311th on the Forbes 400. Living Essentials, the parent company of 5-Hour Energy, has pledged a minimum gift of $75,000 for this project. At a nickel apiece, assuming sales go well, $75,000 will be the charitable spin-off from the sale of 1.5 million bottles at a total retail price of nearly $4.5 million.

I admit that $75,000 is not a small amount of money, but it’s hardly transformational for an organization like the Special Operations Warrior Foundation, whose annual budget is about $4.7 million. More to the point, this initiative is clearly driven by the opportunity to market a new product and to align it in the public mind with a patriotic cause (scholarships for the orphans of fallen Special Operations personnel). Living Essentials has a chance to get a new flavor of 5-Hour Energy into the hands and bloodstreams of consumers, and their wager is that these customers will buy their product again and again, long after the nickel-to-charity promotion has run its course. And they’re probably right.

I wrote to the folks at Living Essentials and asked them to reveal their advertising budget for this promotion, but after a first chirpy exchange, their public relations person failed to get back to me and answer the question. Given the regularity with which I’ve seen the television ads promoting this endeavor, I can only guess at the lopsided ratio of advertising dollars to philanthropic impact. And because Living Essentials is a privately-held company with a secretive reputation, we’ll never know.

I’m picking on 5-Hour Energy, I confess, because I find their product so unappealing and their motives so transparently self-serving. But again, 5-Hour Energy is hardly alone in using charity for shameless self-promotion and brand positioning. Meanwhile, according to Giving USA, corporate giving overall is dropping: charitable gifts in 2013 were only 0.8% of pre-tax corporate profits, or half of the level thirty years before. And in a year when charitable giving in general rose significantly, corporate giving dropped nearly 2% from 2012. Corporations are giving less, and it is increasingly rare for them to give without a product tie-in.

I imagine some of you will think I’m piling on. After all, there is charitable benefit from all of this. And ours is a capitalistic society, so the corporate donors are right to expect some sort of return for their gift. This, many of you may say, is a classic “win-win” situation.

I understand all of that. But when the corporate marketers’ win is so much bigger than the benefit to the nonprofits they are officially supporting, and when vastly more is spent in promoting the effort than in actually funding the cause, that bugs me. And if it bugs you as well, try to resist feeding the beast. Keep in mind that buying an item branded with a charitable logo does precious little to help the nonprofit. If you care about that nonprofit, don’t feel that you have to buy a specially-marked pair of shoes or a box of detergent or, especially, a small plastic bottle of caffeinated syrup.

No: there’s a simpler way to show your affection and caring. Send the charity a check.

Copyright Alan Cantor 2014. All rights reserved.

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14 Comments. Leave new

Debbie Watrous
July 8, 2014 1:35 pm

An excellent critique, Al. I have another reason to dislike cause marketing — companies look for the simple, heart-tugging (and patriotic in this case — they can’t go wrong!) nonprofits and projects. Nonprofits with more complex, less “sexy” missions, therefore, have even fewer avenues to secure corporate gifts. A variation on the cause marketing scheme is the recent flood of Facebook campaigns where a company invites nonprofits to get the most Facebook votes and then awards the winner $5,000 or some such. Sounds great except that (1) voters give access to their Facebook accounts to the company sponsoring the competition and (2) puppies and children (simple, heart-tugging causes) win over the rest of us. Corporate citizenship moves ever-further from philanthropy toward marketing. In our capitalist society, it’s no surprise.

Reply

    Thanks, Debbie, and excellent points.

    As many have pointed out, when we leave charitable decisions in the hands of marketers, the charity has to be marketable. That leaves out tens of thousands of nonprofits that do excellent work, but are complex to explain and understand. Indeed, if the mission of the nonprofit requires explaining, it’s of little interest to marketing folks.

    And as Ken Stern explains in detail in his book, With Charity for All, the key words that are used by sham charities (the folks who call us on our home phones in the evening looking for money), are “veterans,” “kids,” “firefighters,” and “cancer.” I won’t comment on the effectiveness of the Special Operations Warrior Foundation, because I have no knowledge of the organization, but I will mention that this cause touches on both veterans and kids. It’s a dream date for the marketing folks at 5-Hour Energy.

    Reply
Steve Varnum
July 8, 2014 2:05 pm

Excellent points, as always. I wonder, though, are dollars the only “benefit to the nonprofits” in these cases?

I don’t know what Special Operations Warrior Foundation spends on marketing, but I’ll bet a nickel that the impact of its own marketing is dwarfed by the boost it gets from its tie-in with 5-Hour Energy. The reference to television ads promoting this campaign suggests this is certainly the case.

With so many nonprofits competing (if a one-sided contest can be called a competition) with mega-corporations for public awareness, the benefit to orgs of cause-related marketing with the right partner can go far beyond the dollars directly generated by the promotion.

‘Fessing up: I’m a marketing director for a nonprofit (New Hampshire Community Loan Fund) and a former colleague of Al’s.

Reply

    Thanks, Steve.

    As always, you make excellent points, and I’m reminded of how much fun it was to work with you and to find good solutions together. (I’m glad you haven’t changed your stripes and become a yes-man!)

    Indeed, I overlooked the aspect of marketing the nonprofit and building brand recognition. The very fact that you and I are discussing the Special Operations Warrior Foundation is proof that this is an effective way of getting the name out there. I will mention that Special Operations Warrior Foundation has a history of cozying up to questionable friends in order to build visibility and raise money. In 2010 they were the charitable beneficiaries of Glenn Beck’s “Restoring Honor Rally” in Washington, what nearly anyone would consider a highly politicized event. The Foundation apparently raised a ton of money from that — but they’ve also tied themselves in the minds of many with the very far-right political fringe.

    I guess there’s marketing and PR that doesn’t cost any money, but that doesn’t mean that it comes without cost.

    Again, thanks, Steve!

    Reply
Jane McLaughlin
July 8, 2014 2:16 pm

Alan – again, I think you are spot on. There are a whole lot of products, actions, initiatives, events, etc. that we either buy or join or ‘like’ on FB that make us feel quite righteous, but in all actuality, end up only lining someone’s pockets or serving our own vanity. A recent book in a similar vein that deals with the whole fair trade concept deconstructs the virtue of supporting these initiatives. (http://www.ohioswallow.com/book/The+Fair+Trade+Scandal). Would that it were so easy to make meaningful change in the world by ordering a latte, wearing a yellow bracelet or donning a pink t-shirt.

Reply
Mark Foynes
July 9, 2014 3:19 am

Having ventured into the corporate space for a time, I’ve done some of these deals. Often they’re embedded in MOUs that either spell out multi-year engagements, or else are part of a dance that informally embeds support in a marketing/corp. phil. regime.

Personally, if I were a relationship manager/director at this scale, a $75k commitment alone would make this account a low priority. However, the more the company co-brands with an entity, the more likely it will need to make that commitment a longer term one.

Good thing? Usually. But the rub – always the tub.

On the flip side, when you are operating on that kind of scale, the oversight of your finance colleagues and auditors becomes more focused. Market-driven arrangements often pull non-profits into areas of IRS compliance gray areas. Marketers and corporate evangelists seek ways to access the served communities. Talk of coupon codes and co-branded messaging can raise the old bugaboo of the infamous 2% rule (http://www.stblaw.com/docs/default-source/cold-fusion-existing-content/publications/pub339.pdf?sfvrsn=2) and things like ‘inducement to buy’ if the donor wants to distribute 2-for-1 coupons to your membership. Tread with caution.

Steve’s point about the publicity aspect is valid. Perhaps beyond our scope, but a valuable exercise might be weighing the profile-raising ROI against some of the potential pitfalls. My hunch is that it would be a net positive, but we nonprofit folks tend to be intuition driven and less metric driven than our for-profit counterparts. Al, I recall you are a student of Kahneman, so you know well the hidden cognition dangers of things like availability bias, heuristics, and illusory correlation. 😉

Fun read, Al. Keep us posted on any future developments.

Reply

    Thanks, Mark, for your very thoughtful response.

    And thanks for bringing up Daniel Kahneman, who won the Nobel Prize in Economics and wrote, Thinking, Fast and Slow about how people make decisions. One of Kahneman’s premises is that we often make decisions, even big ones, impulsively, what he calls “System 1 Thinking,” without really engaging our analytic reasoning (what Kahneman calls “System 2.”

    I think you’re right — that Kahneman would say we in the nonprofit world are making our decisions without really thinking things through. But it can cut both ways, this System 1 thinking. For some of us (I lean this way, I confess), we approach corporate alliances with caution, with our default mode being to turn down such offers. But others might say, “Wow! $75,000! Sign me up!” And they come to understand the fall-out later, when it’s too late.

    Your link to the 2% rule affecting unrelated business income, meanwhile, is a healthy caution.

    Thanks, Mark!

    Reply

Hi, Al — great stuff! I think we all agree that a crummy retailer’s marketing deal with a questionable charity kind of stinks. But I’d love to read your follow-up about how an effective charity can work on a campaign like this with an uncrummy partner, to the benefit of both, and without the baggage of the case you describe here. What kinds of marketing collaborations with uncrummy partners can work?

Reply

    Thanks, Guy —

    Yes, as a good polemicist, I did my best to pick a story with not terribly likeable protagonists. In fact, there are a lot of excellent corporate partnerships that work well, and I think I will indeed do a follow-up column. That said, I don’t know many situations where it works well if there’s a product tie-in — one of these “buy this specially-marked box and help a charity” kinds of scenarios. If folks out there know of any, please share!

    Reply
Linda Markin
July 9, 2014 12:13 pm

Have you seen Amazon.com’s Smile promotion that allows you to pick your own charity for pittance contributions? Do you feel differently about that kind of marketing linked giving? I figure why not take advantage of one more way I can contribute to an organization I already support with my time and personal checks.

Reply

    I’m glad you brought that up, Linda — thank you!

    Certainly, the Amazon Smile program is in a different category from the 5-Hour Energy example, in that the consumer is not buying a particular product to trigger the gift.

    That said, Amazon is counting on people buying more through Amazon, rather than other businesses, so that they can get the gifts to the charities they care about. I understand from Amazon’s standpoint why they would do that. But what’s the bigger picture here? Amazon is famously the ranking bad guy for locally owned businesses. Independent bookstores — and stores of all kinds — are in rough shape thanks to the tactics of Amazon. Now the publishing industry is in a colossal wrestling match with Amazon over pricing issues. Amazon is making a lot of money, but suppliers and authors are making less, and a lot of businesses are closing up shop.

    We might say that this is simply the way of the world. But we have to recognize that the local shops pay property taxes, and the employees pay state and local income taxes, all of which keeps our infrastructure going. And the local stores are part of the community. (You know that, of course — because that’s the kind of work you support at Vermont Community Loan Fund.) Most importantly, for those states that have sales taxes (mine doesn’t), purchases at the local stores pay for schools, police, roads, and firefighters. On the other hand, Amazon has been the industry leader in refusing to collect sales tax, except in those few jurisdictions where they have major operations. So the shorthand is, the better Amazon does, the worse the local economy does.

    So what is the consumer to do? Well, if there’s an item that can ONLY be found on Amazon, then order it and use the Smile program to send the organization you care about a nickel for every ten dollars you pay. But if you can conceivably get the product locally, you do much more for the community by buying it at the local store rather than Amazon.

    And the nonprofits? Well, sign up with Amazon Smile and accept the checks. They won’t amount to much, but you might as well take the dough. But don’t launch a campaign urging your supporters to buy through Amazon to support you. I say that for all the reasons above. Plus, well, it’s not good fundraising strategy. You can raise vastly more money by developing relationships and asking people for money — real money, not 0.5% of what they buy online. Don’t divert the donors’ attention into schemes like Amazon Smile.

    That’s my thinking on it. What do you all say?

    Reply

I enjoyed this tremendously and think you make some good points, however, there are a few things you fail to consider. The first is that both 5-Hour and coffee taste terrible although both can become an acquired taste. Secondly, it is very unlikely that someone will buy the product simply to support the cause. They might buy more, more often or switch brands. Next, you completely leave the marketing value to the charity out of the equation. I had never heard of Special Operations before the 5-Hour campaign. Now, pretty much everyone buying the product or seeing the marketing has. Yes corporate outright giving is down but it should never have been the item driving your budget. That would be individual donors. Lastly, I see this as no more disturbing than the proliferation of special events which are costly, labor intensive, low net gains and rarely produce converted long term donors. Development could be much more effectively utilizing their time cultivating and stewarding donors.

Reply

    I agree with you more that I disagree, Skot. I too am very skeptical of special events, which can be a terrible time sink for nonprofits. I too think the real money to be raised is from individual donors, and that cultivating and stewarding those relationships is vital. And, yes, 5-Hour tastes terrible, or so I’m told. (I’m not a caffeinated guy, or someone who likes to pay $3 for a plastic bottle of chemicals, so I don’t know first hand.)

    And yes, I downplay the exposure this gives to the charity. Good point.

    All of that said, nonprofits should be cautious about aligning themselves in cause-related marketing schemes. They may find that their brand is damaged if the corporation isn’t of a high caliber. They may find that the relationship takes far more time than it’s worth. And they may find that donors think they’ve donated to you by buying an item. (There’s been some interesting research on how participating in this sort of superficial “donation” from buying a product makes people less likely to donate outright.)

    Thanks for weighing in!

    Reply

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